Commissioner of Income-Tax, Madras Vs.
Managing Trustees, Nagore Durgha, Nagore  INSC 96 (8 April 1965)
08/04/1965 SUBBARAO, K.
CITATION: 1966 AIR 73 1965 SCR (3) 659
CITATOR INFO :
R 1971 SC2463 (14)
Wakf--Scheme for management of Muslim
Wakf--Trustees called Nattamaigars to manage wakf property--Surplus income to
be distributed among beneficiaries of trust called kasupangudars according to
definite shares--Income how to be assessed--Applicability of Indian Income Tax
Act, 1922(11 of 1929.), s. 41.
A scheme was settled in 1955 by the Madras
High Court for the management of the income and properties of the Durgah
consecrated to a saint in Tanjore District. Under the scheme the management of
the properties of the Durgah was to be in the hands of eight trustees called
Nattamaigars one of whom was to be elected by them as Managing Trustee. The net
income of the trust was to be distributed among descendants of the foster son
of the saint, called Kasupangudars, whose definite shares were to be determined
each year by a list prepared by the Managing Trustee. For the assessment years
1953-54 and 1954-55, the Income-tax Officer assessed the surplus income of the
wakf in the hands of the Managing Trustee as an association of persons. The
trustees unsuccessfully appealed to the Appellate Assistant Commissioner and
the Appellate Tribunal. The controversy centered round the question whether
s.41 of the Indian Income-tax Act, 1922 applied to the case. In a reference
made by the Tribunal at the instance of the assessee the High Court held that
that s. 41 applied to the case and that the income was received by the trustees
on behalf of the beneficiaries. Aggrieved, the Commissioner of income Tax
appealed, by certificate, to this Court.
It was contended on behalf of the appellant
that as the properties vested in the managing trustee and he received the
income in his own right and not on behalf of the beneficiaries, though for
their benefit, the said income in the hands of the managing trustee fell
outside the scope of s.41 of the Act.
HELD: The High Court had rightly answered the
question in favour of the assessee.
(i) The technical doctrine of vesting is not
imported into s. 41. This is apparent from the fact that a trustee appointed
under a trust deed is brought under the section though legally the property
vests in him. In the case of a Muslim Wakf the property vests in the Almighty;
even so the mutawallis are brought under the section. Thus in some of the persons
enumerated in the section property vests and in others it does not. A
reasonable interpretation of the section is that all categories of persons
mentioned therein are deemed to receive them on behalf of another person or
persons or manage the same for his or their benefit. None of them has any
beneficial interest in the income; he collects the income for the benefit of
others. In this view even if the Nattarnaigars were trustees in whom the 65 660
properties of the Durgah vested, they should be deemed to have received the
income only on behalf of the Kasupangudars in definite shares. [662G-663B] (ii)
The mutawalli of a Muslim Wakf is merely a manager and not a
"trustee" as understood in the English system.
[663E] Vidya Varuthi Thirtha v. Balusami
Ayyar, (1921) 48 I.A.
32 and Allah Rakhi v. Mohammad Abdur Rahim,
(1933) 61 I.A.
50, relied on.
Therefore in terms of s.41 of the Act the
Nattamaigars were the manager of the properties on behalf of other and were
entitled to receive the income therefrom on behalf of them. [663G-H] (iii)
Under c1.3 of the scheme it was the "management and administration"
of the Durgah and its properties which was vested in the Nattamaigars and not
the properties themselves. In the absence of clear words it could not be held that
the High Court in framing a scheme for the endowments of the Durgah had
introduced a foreign concept of "trust" in derogation of Mohammadan
Law. The scheme therefore did not vest the properties of the Durgah in the
Nattamaigars and the contention on behalf of the Revenue could not succeed.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 213 and 214 of 64.
Appeals from the judgment and order dated
April 4, 1961, of the Madras High Court in Case Referred No. 130 of 1956.
Niren De,Additional Solicitor-General R.
Ganapathy Iyer and R.N. Sachthey, for the appellants (in both the appeals.
A. V. Vishwanatha Sastri, M.M. Ismail and R.
Gopalakrishnan, for the respondent in both
The Judgment of the Court was delivered by
Subba Rao, J. In the t,own of Nagore in Tanjore District, Madras State, there
is a Durgha consecrated to Hazerath Sayed Shahul Hameed Quadir Ali Ganja Savoy
Andavar, who lived some 400 years ago. The said Durgha receives large income
from immovable properties endowed to it and the offerings in cash and kind made
by the devotees. The Durgha and its properties are now being administered under
a scheme settled by the Madras High Court on March 16, 1955. Under the scheme
the management of the administration of the affairs of the said Durgha vests
hereditarily in 8 trustees called Nattamaigars, who constitute a board of
trustees. The said board of trustees shall from among themselves elect one as a
managing trustee and he shall hold office for a term of 3 years. The managing trustee
shall at the end of each fasli prepare a balance-sheet verified by the manager
and ascertain the net amount available for payment to kasupangudars, who are
the descendants of Saiyed Muhammed Eusoof, the foster son of the saint. The
Managing Trustee shall declare the amount due to each of the kasupangu (share)
and shall allocate the amount to each kasupangudar (sharer) in the list to be
prepared for that purpose 661 in each year. He shall pay the amount to each
kasupangudar in accordance with the list. It is said that at present there are
640 kasupangudars. Briefly stated under the scheme the management of the
properties of the Durgha, both movable and immovable, vests in Nattamaigars,
and the kasupangudars are entitled to the surplus in accordance with their
For the assessment years 1953-54 and 1954-55
the Income- tax Officer assessed the surplus income in the hands of the
Managing Trustee as an association of persons. The Appellate Assistant
Commissioner, on appeal, confirmed the same. On further appeal, the Income-tax
Appellate Tribunal took the same view. At the instance of the assessee, the
Tribunal submitted the following question for the opinion of the High Court of
Madras under s.66(1) of the Income-tax Act. 1922, hereinafter called the Act:
"Whether the provisions of Section 41
can be said to apply to the assessees in this case." A Division Bench of
the High Court, which heard the reference. held that the Managing Trustee qua
the surplus income managed the property and derived the income on behalf of the
kasupangudars and that the assessment should be made on the said Managing
Trustee to the extent of the interest of each of the kasupangudars in the
income received by him.
In the result it answered the question in the
affirmative and in favour of the assessee. The Commissioner of Income- tax,
Madras, on a certificate of fitness granted by the High Court, has preferred
the present appeals against the said Order.
The learned Additional Solicitor General,
appearing for the Revenue, contended that the Natmaigars being trustees, the
properties of the Durgha vested in them and, therefore, they or the Managing
Trustee administered the trust properties in their own right and not on behalf
of the kasupangudars and hence s.41 of the Act did not apply, with the result
the Income-tax Officer had rightly assessed the surplus income in the hands of
the trustees as an association of persons.
Mr. A.V. Viswanatha Sastri, learned counsel
for the assessee respondent, argued, on the other hand, that the Nattamaigars
of the Durgha were not trustees as understood in the law of trust but were only
managers managing the properties on behalf of the Durgha and kasupangudars. On
that assumption, his argument proceeded. as the Nattamaigars, as managers, held
the surplus on behalf of the kasupangudars for distribution in definite shares,
s.41 of the Act was attracted.
At the outset we may make it clear that in
this appeal we are concerned only with the surplus remaining on hand with the
Nattamaigars after meeting the expenses of the Durgha.
662 The problem presented in these appeals
falls to be decided on a true construction of s.41 of the Act. The material
part of s.41 reads:
(1) In the case of income, profits or gain
chargeable under this Act, which the Courts of Wards, the
Administrators-General, the Official Trustees or any receiver or manager
(including any person whatever his designation who in fact manages property on
behalf of another) appointed by or under any order of a Court, or any trustee
or trustees appointed under a trust declared by a duly executed instrument in
writing whether testamentary or otherwise (including the trustee or trustees
under any Wakf deed which is valid under the Mussalman Wakf Validating Act,
1913), are entitled to re ceive on behalf of any person, the tax shall be
levied upon and recoverable from such Court of Wards, AdministratorsGeneral, Official
Trustee, receiver or manager or trustee or trustees, in the like manner and to
the same amount as it would be leviable upon and recoverable from the person on
whose behalf such income, profits or gains are receivable, and all the
provisions of this Act shall apply accordingly.
Under this section the income of properties
receivable by the enumerated persons for the benefit of others is liable to be
assessed to tax in their hands in the like manner and to the same amount as it
would be leviable upon and recoverable from the person or persons on whose
behalf such income is receivable. This section centers on the basic fact that
the person in whose hands the income is assessable shall be entitled to receive
the same on behalf of any person; if he is not so entitled, the provisions of
the section cannot be invoked. So. it is contended that, as the properties
vested in the managing trustee and he received the income in his own right and
not on behalf of the beneficiaries, though for their benefit,, the said income
in the hands of the managing trustee fell outside the scope of s.41 of the Act.
There are two answers to this contention. The
doctrine of vesting is not germane to this contention. In some of the
enumerated persons in the section the property vests and in others it does not
vest, but they only manage the property.
In general law the property does not vest in
a receiver or manager but it vests in a trustee, but both trustees and
receivers are included in s.41 of the Act. The common thread that passes
through all of them is that they function legally or factually for others: they
manage the property for the benefit of others. That the technical doctrine of
vesting is not imported in the section is apparent from the fact that a trustee
appointed under a trust deed is brought under the section though legally the
property vests in him.
In the case of a Muslim Wakf the property
vests in the Almighty; even so the mutawallis are brought under the section. A
reasonable interpretation of the 663 section is that all the categories of
persons mentioned therein are deemed to receive the income on behalf of another
person or persons or manage the same for his or their benefit. None of them has
any beneficial interest in the income; he collects the income for the benefit
of others. In this view, even if the Nattamaigars were trustees in whom the
properties of the Durgha vested, they should be deemed to have received the
income only on behalf of the kasupangudars in definite shares.
The same conclusion will be reached even if
the problem was approached from a different angle. In the well-known decision
of the Privy Council in Vidya Varuthi Thirtha v. Balusami Ayyar(1) the
inappropriateness of the use of the expression "trustee" to the
manager of a Hindu or Mahommedan religious endowments was brought out. Therein
their Lordships observed:
"Neither under the Hindu Law nor in the
Mahommedan system is any property "conveyed" to a shebait or a
mutawalli, in the case of a dedication. Nor is any property vested in him;
whatever property he holds for the idol or
the institution he holds as manager with certain beneficial interests regulated
by custom and usage. Under the Mahommedan Law, the moment a wakf is created all
rights of property pass out of the wakf, and vest in God Almighty. The curator,
whether called mutawalli or saijadanishin, or by any other name, is merely a
manager. He is certainly not a "trustee" as understood in the English
system." The Privy Council, in the context of a wakf property, reaffirmed
the said observations, in Allah Rakhi v. Mohammad Abdur Rahirn(2). The effect
of the said decisions is that Nattamaigars are only the managers of the
properties in which the Durgha and the kasupangudars have beneficial interests.
The properties do not vest in them. They receive the income therefrom on behalf
of both of them.
After meeting the expenses of the Durgha they
hold the balance on behalf of the kasupangudars and distribute the same in
accordance with their shares. In this view, in terms of s. 41 of the Act the
Nattamaigars are the managers of the properties on behalf of others and, are
entitled to receive the income therefrom on behalf of them. With the result,
the income which they hold on behalf of the kasupangudars can be assessed only
in their hands in the manner prescribed thereunder. But it is said that
whatever may the doctrine of Hindu or Mohammadan law, under the terms of the
aforesaid scheme the properties vested in the Nattamaigars and, therefore, they
receive the income in their own right and* not on behalf of the kasupangudars.
A careful reading of the relevant (1)(1921) L.R. 48 I.A. 302, 315.
(2) (1933) L.R.61.'. I.A. 50.
664 part of the scheme does not countenance
Clause 3 of the scheme, which is the material
"The management and administration of
the affairs of the Nagore Durgha at Nagore, Tanjore District, and other thakias
and shrines connected therewith (mentioned in Schedule A hereunder) and all
properties--movables and' immovables--which belong to or have been or may
hereafter be given, dedicated, endowed thereto, shall subject 10 the provisions
thereof vest hereditarily in the eight trustees or nattamaigars of the Durgha
who shall constitute the Board of Trustees. Each trustee or nattamaigar is
entitled to hold' office for life, and after him the trusteeship shall devolve
on his next male heir in accordance with the custom prevailing in respect of
such office in the Durgha." Under this clause the management and
administration of the Nagore Durgha and its properties vest in the
Nattamaigars. What vests in the Nattamaigars is not the properties of the
Durgha but the management and administration thereof. Unless the words are
clear we are not prepared to hold that the High Court in framing a scheme for
the endowments of the Durgha had introduced a foreign concept of
"trust" in derogation of Mohammadan law. 'We, therefore, hold that
the scheme did not vest the properties of the Durgha in the Nattamaigars.
Lastly, a faint argument was raised to the
effect that under the scheme the managing trustee was not appointed under any
order of a Court but was appointed by an agreement among the trustees. But in
cl. 4 of the scheme the High Court gave a specific direction that the managing
trustee shall be elected from among the Board of Trustees. The Managing Trustee
elected was certainly appointed under an order of a Court, for the election was
held pursuant to the order of the Court. That apart, in the view we have taken,
namely, that the Nattamaigars are not trustees in the English sense of the
term, this question does not arise for consideration.
In the result, we hold that the High Court
has rightly answered the question referred to it in the affirmative and in
favour of the assessee. The appeals fail and are dismissed with costs. One